Europe:Looking to the future

1https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf 2http://ec.europa.eu/clima/policies/strategies/2050/index_en.htm 3http://www.bloomberg.com/news/articles/2016-01-14/renewables-drew-record-329-billion-in-year-oil-prices-crashed 4http://ec.europa.eu/clima/policies/strategies/2050/index_en.htm

Europe: Looking to the future

Current low oil prices make the outlook for European oil and

gas companies (and their treasuries) as challenging as for

their international counterparts.

Whilst the current focus is to reduce capital expenditure

and costs, some differing but still important challenges may

arise in the longer term for European oil and gas companies.

In addition to a general need to restart capital expenditure

as oil prices eventually recover, there are two other areas

where the European energy market is likely to need

appreciable investment in the coming years: sustainable

energy and pipeline networks. Therefore, while corporate

treasuries may be looking for efficiencies in the short term,

they are also looking for ways in which they can improve their

flexibility, so that resources can be quickly made available

when needed in the most efficient manner possible.

In the case of sustainable energy, Europe was heavily

involved in the December 2015 Paris global climate change

agreement (COP21)1, but more specifically there is a growing

shift towards changing Europe’s energy mix. An important

factor here is the European Commission’s 2050 low-carbon

economy roadmap2 that focuses on adopting sustainable

energy for the region in the long term. While oil prices have

declined along with oil exploration investment, the same

cannot be said of renewables investment: 2015 saw a record

USD329.3bn of investment in clean energy technology3.

Given that a key milestone in the EC roadmap is achieving

a reduction of 40% in emissions by 20304, the need for

investment in renewables seems unlikely to decline.

Lance T. Kawaguchi

Managing Director

Global Sector Head – Resources

and Energy Group Payments and

Cash Management

Another area where energy company treasuries may have to

find capital resources at short notice is pipeline networks.

The EU’s own oil production continues to decline and up to

90% of oil products will need to be sourced from outside

the EU by 20205. At present, only 20% of oil imports are

transported by pipeline6, but given the EU’s long term

view of the impact on the environment of tanker shipment,

studies have been commissioned to explore the increased

of use of pipelines for the transport of oil products7. Using

an extended pipeline network for transport lessens the risk

to the environment, reduces emissions and also assists

better supply security for Eastern European nations8.

Furthermore, the current EU internal pipeline network has

limited connectivity between Western and Eastern Europe,

which leaves central and eastern European refineries

dependent on imports from the Druzhba pipeline from Russia.

Corporate treasury: balancing the short and long term

This dichotomy, between a need for immediate cost

savings and efficiency and a potential demand for significant

capital expenditure in the future, presents energy company

treasuries with a demanding balancing act. Agility is a key

part of accomplishing this, particularly in terms of supporting

corporate liquidity and working capital needs, which may

change rapidly.

This need for agility is changing the timeframe in which

treasury has to operate; where once end of month analysis and

planning were sufficient, there is now a growing need

for this to happen in or near real time. At the same time, the

complexity of the data upon which this needs to be based is

growing; treasuries have to be able to interpret increasingly

complex cash flows and operating models across markets as

de-regulation continues. This in turn throws further demands

upon treasuries’ forecasting and risk management capabilities,

which also have to be balanced against the need to improve

the yield/return on monetary assets.

5,6, 7http://www.europarl.europa.eu/document/activities/ cont/201106/20110628ATT22856/20110628ATT22856EN.pdf – Section 2.3 Oil Pipelines

8http://www.europarl.europa.eu/document/activities/ cont/201106/20110628ATT22856/20110628ATT22856EN.pdf – Section 2.3.4. Future Trends and Conclusions

Published: April 2016

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